Earnings

Dissecting the Numbers for Hostess Brands, Inc. (TWNK) and Omega Protein Corporation (OME)

Hostess Brands, Inc. (NASDAQ:TWNK) shares are down more than -2.77% this year and recently increased 1.04% or $0.13 to settle at $12.64. Omega Protein Corporation (NYSE:OME), on the other hand, is down -12.57% year to date as of 11/13/2017. It currently trades at $21.90 and has returned 0.00% during the past week.

Hostess Brands, Inc. (NASDAQ:TWNK) and Omega Protein Corporation (NYSE:OME) are the two most active stocks in the Processed & Packaged Goods industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.

Growth

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect TWNK to grow earnings at a 7.66% annual rate over the next 5 years. Comparatively, OME is expected to grow at a 8.00% annual rate. All else equal, OME’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. EBITDA margin of 16.2% for Omega Protein Corporation (OME). TWNK’s ROI is 6.40% while OME has a ROI of 10.50%. The interpretation is that OME’s business generates a higher return on investment than TWNK’s.

Cash Flow 




Cash is king when it comes to investing. TWNK’s free cash flow (“FCF”) per share for the trailing twelve months was +0.40. Comparatively, OME’s free cash flow per share was +0.53. On a percent-of-sales basis, TWNK’s free cash flow was 0.01% while OME converted 0% of its revenues into cash flow. This means that, for a given level of sales, TWNK is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. TWNK has a current ratio of 2.20 compared to 3.80 for OME. This means that OME can more easily cover its most immediate liabilities over the next twelve months. TWNK’s debt-to-equity ratio is 1.05 versus a D/E of 0.00 for OME. TWNK is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

TWNK trades at a forward P/E of 18.84, a P/B of 1.32, and a P/S of 1.63, compared to a forward P/E of 16.22, a P/B of 1.39, and a P/S of 1.43 for OME. TWNK is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. TWNK is currently priced at a -19.49% to its one-year price target of 15.70. Comparatively, OME is -0.45% relative to its price target of 22.00. This suggests that TWNK is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for TWNK and 3.00 for OME, which implies that analysts are more bullish on the outlook for OME.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. TWNK has a short ratio of 9.00 compared to a short interest of 1.16 for OME. This implies that the market is currently less bearish on the outlook for OME.

Summary

Omega Protein Corporation (NYSE:OME) beats Hostess Brands, Inc. (NASDAQ:TWNK) on a total of 9 of the 14 factors compared between the two stocks. OME has a higher cash conversion rate, is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, OME is the cheaper of the two stocks on an earnings and sales basis, Finally, OME has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

Comparing Anadarko Petroleum Corporation (APC) and... Anadarko Petroleum Corporation (NYSE:APC) shares are down more than -29.87% this year and recently increased 0.93% or $0.45 to settle at $48.90. Cabot...
AEGON N.V. (AEG): Trading Secrets for Today’... AEGON N.V. (NYSE:AEG) dropped at the rate of -1.22% in Tuesday’s trading session from $5.76 to $5.69 and has now fallen 4 consecutive sessions. The pr...
Groupon, Inc. (GRPN) Internals Are Exhibiting Conf... Groupon, Inc. (NASDAQ:GRPN) gained 1.83% in yesterday’s session, going up from its prior closing price of $4.91 to $5.00, and has now recorded rally i...
Drilling Down Into the Books for LPL Financial Hol... LPL Financial Holdings Inc. (NASDAQ:LPLA) is an interesting stock at present. Now trading with a market value of 4.28B, the company has a mix of catal...
Overseas Shipholding Group, Inc. (OSG) vs. Matson,... Overseas Shipholding Group, Inc. (NYSE:OSG) and Matson, Inc. (NYSE:MATX) are the two most active stocks in the Shipping industry based on today’s trad...